How many leads does it take to get to the center of your sales plan?

In the last newsletter, I demonstrated how to design a Sales Funnel for your business that will allow you to track and analyze deal flow at the various stages of your sales cycle. I also discussed metrics that you can use to measure activity and analyze results. In this newsletter, I will expand upon this discussion by demonstrating how to convert your company’s current deal flow at various stages in the Sales Funnel into a revenue forecast and then identifying the level of demand generation activities required to achieve revenue objectives for the coming year.

Evaluating your deal pipeline. The first step in identifying the level of activities necessary to achieve revenue objectives for the coming year is to estimate the amount of revenue anticipated from your current deal pipeline.

In the example we used in the previous newsletter, there are four distinct stages to the Sales Funnel we were evaluating. These are:

Qualifying

Proposing

Closing

Implementing

To measure anticipated revenue from the current deal pipeline, you will need to identify the 1) current number of opportunities, 2) the conversion rate and 3) the average deal size across all stages of the Sales Funnel. Conversion rate can either be expressed as the percentage of deals at a particular stage that will either a) move to the next stage in the sales funnel – ie.. a lead becomes qualified, a qualified lead becomes a proposal or a proposal is accepted and closed or b) the percentage of deals that will result in new revenue at that specific stage. These metrics are related in that the percentage of deals that will result in new revenue is a multiplication of the conversion percentages across all stages of the Sales Funnel. For example, if 50% of leads become qualified and you are able to propose on 20% of those and you actually win 30% of the deals you propose on, the odds that a lead will generate revenue are 3% ( 50% X 20% X 30% ). In addition, for those deals that are currently in the Implementing stage you need to identify the 1) current number of implementations underway, 2) their estimated percentage of completion and 3) the average deal size.

In the following example, an analysis of the current deal pipeline reveals the following:

8 deals are being implemented,

4 proposals are outstanding,

50 leads have been qualified

150 leads need to be qualified

Average deal size is $115,000,

The deals being implemented are 25% complete,

Historically, 50% of leads become qualified and 20% of qualified leads result in proposals and you win 30% of the deals you propose on.

Based on this analysis, the current deal pipeline reflected in the Sales Funnel will result in $1,690,500 of revenue in the coming year.

If your revenue plan for next year is $8,500,000 and you can expect $1,690,500 to come out of activities in the current deal pipeline, then you will need to generate $6,809,500 in new business that will close AND be implemented in the coming year. If average deal size is $115,000, then you will need to successfully win 59 new projects. If on average you win 30% of the proposals you deliver, then you will likely have to propose on 197 projects in order to come up with 59 winners. If you are able to propose on only 20% of the leads that you qualify, then you will need to generate 987 qualified leads to make the 197 proposals. If only 50% of the total leads you generate are qualified, meaning that there is a real customer need that you are able to provide a solution for, then you will have to generate 1,974 leads that make their way through your sales process and result in 59 new projects.

Sensitivity Analysis. Having a thorough understanding of the elements of your sales cycle and organizing activities into a Sales Funnel helps with planning and finding opportunities to improve your sales process and evaluating different scenarios. As an example, if you were able to increase the average deal size for new business generated next year by 25%, you would only need 47 new deals and 1,579 new leads to achieve your $8,500,000 revenue goal. If you were able to increase your conversion rate by 10 percentage points for both the number of qualified leads resulting in proposals (20% to 30%) and your rate of successfully closing proposals, you would only need 987 new leads to win the 59 new projects necessary to achieve your revenue plan. If you were able to improve both your average deal size and achieve the 10 percentage point improvement in your conversion rate then you would only need 790 new leads as is demonstrated below.

If your cost to deliver a proposal is $5,000, your cost to qualify a lead is $500 and your cost to generate a lead is $50 then you would save over $750,000 in marketing and sales expense due to the associated reduction in activity levels. A $750,000 profit improvement on $6,809,500 is 11 percentage points which could substantially improve your profit margin or take your business into the black.

Identifying lead sources and responsibilities. One you have identified the number of leads required to achieve your revenue plan, you have to identify sources for these leads and assign responsibility to members of your team for delivering results. Identifying lead sources and lead generation activities will also help you developing your marketing and sales budget for the coming year. Here is an example of an assignment of lead sources.

NOTICE: B2B CFO Partners, LLC, dba B2B CFO is an Arizona limited liability company that provides advisory and consulting services. B2B CFO® partners are independent contractors and are not officers, employees or agents of, or partners or joint ventures with, the companies they serve, nor are they independent CPAs.